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Top 5 Important Tax and Investment Documents to Keep

There are different types of financial and investment documents we rely on, in spite of the fact so much of this information is now available online. Most companies limit how far back you can go with previous-year documents, so the only way you can make sure you have the documents you will need when you need them is to actually have a physical copy in your possession.

That can leave you with piles of paperwork, and you’ll need to be able to get rid of it all in its own time.

How long you will need to hold on to any documents will depend entirely upon what they’re related to. There are different recommended time frames for each.

1. Brokerage Statements

Since most investment brokerage firms supply pretty-looking yearend summary statements — typically with more detail than you even need — you should generally keep your brokerage statements only until the end of the current year, when the annual statement arrives. Once it does, there’ll be no need to retain monthly or quarterly statements.

Be certain you reconcile the monthly or quarterly statements you received during the year with the annual summary. If all the information matches, you can feel free to destroy the short-term statements.

As far as the annual statements, they should be stored with your income tax records if you have capital transactions. Statements will act as source information for the transactions that are reported on your income tax return. This means statements will need to be retained for as long as you keep your income tax returns.

2. Income Tax Returns

There’s some diversions of opinion on how long you should keep income tax returns. Some sources say three years — which is the maximum number of years the IRS has for auditing your tax returns under general circumstances.

Most CPAs and tax attorneys will tell you that you should keep your tax returns for at least seven years, and that is the better advice. The IRS can reach back six years if they determine your income has been underreported by more than 25%. Even if you didn’t, you have to be ready in case the IRS thinks you did.

The even better advice however is to keep your tax returns forever. There is no statute of limitations on fraud, and if the IRS determines a previous year’s tax return may have been fraudulent, they can reach back any number of years.

In the event of an audit, your income tax returns will be your best defense. This is particularly true of supporting documents, since they are the source of the information included in your tax returns.

3. Retirement Account Statements

The advice here is generally similar to what it is for brokerage statements, but there are some departures. With monthly or quarterly retirement account statements, you need to hold them only until you receive the annual statement. And as long as the annual statement agrees with the interim statements, you can feel free to discard the interim statements.

However, since retirement accounts are cumulative in nature, you should keep any annual statements for as long as you have the accounts open or at least until you retire.

One exception is statements confirming non–tax-deductible contributions to your IRA accounts. You should keep those forever, since a problem will typically occur only when you withdraw the money many years later.

4. Bank Statements

Now that most banking is done online, it’s questionable whether or not you even need to retain bank statements anymore. Generally speaking however, you should retain statements and anything to do with your income taxes. This would include tax payments made or tax-deductible expenses.

The situation becomes more complicated however, if you’re self-employed. Bank statements can be part of the source documentation that supports the income statements you use as the basis for the preparation of your income tax returns. You should keep these for as long as you retain the income tax returns they support. Again, think of them as preparation for a future audit.

5. Credit Documents

As long as you have reconciled each month’s statement and are in agreement with the charges and payments made, you can usually discard these after one year. The situation is different however if you make substantial use of credit cards in the operation of your business.

If the credit card charges are business related, the advice is similar to what it is for bank statements. Since the credit cards have probably been used primarily to pay for purchases, travel and other business expenses, you should keep the statements for as long as you keep the related income tax returns.

If you have any documents that are related to either the payoff of debt or the settlement of a disputed charge, you should plan on keeping these forever. Though it may sound cumbersome, these will be your only defense in the event a creditor comes out insisting you still owe them money even after the debt is paid.

This is not an unusual situation, and it shows up frequently on credit reports. Not all companies are efficient when it comes to recording paid debts, especially if the accounts were delinquent at some point. Many debt collectors in particular accept money in payment of an open obligation but fail to report it as closed.

You will need your original documents supporting the payoff of the obligation in order to finally close out the account with the creditor, and to clear it off of your credit report. Credit reporting agencies will believe the creditor unless you have written evidence to prove them wrong.

Should such an error show up in your credit report, you can fix the problem in a matter of hours — if you have documents showing you paid the debt in the first place. If you don’t, getting the matter settled could take weeks or months and could even require you repay a debt you’ve already paid.

Summary

It’s important to keep these top five tax and investment documents in a safe and secure place, where you can easily access them. You want to be able to prove your transactions or refer to them at any time.

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Ole Bill

1 year 8 months ago

I either download all financial documents or scan them with a page scanner. I then save these PDF files in the cloud. This way I don’t have a lot of paper to carry around and can access these documents from anywhere.

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